A seller credit or seller contribution are funds given by the seller to you to help you pay the closing costs of a home loan. The funds typically cover most of your closing costs. This includes personal hazard/fire insurance costs, property taxes, and more.
In other words, if the seller pays for your closing costs, then you only have to worry about paying the down payment of the loan. It has its advantages as well as advantages. In this post, we will discuss how you can use these funds to your advantage and what are the rules and requirements.
Even though the seller can pay for your closing costs, they cannot pay your down payment as per the law. If the money you receive from the seller exceeds the closing costs, you will return the extra money to the seller. Homebuyers are not eligible to receive cash from the seller even if it is just a dollar.
How Can you Get Seller Credit?
- If you want to get seller credit, you must make sure that you include it in your purchase and sale agreement. It also means that you will have to ask your real estate agent to negotiate the seller credit with the seller on your part.
A real estate agent handles this. It is part of the price negotiation of the home. Furthermore, a mortgage lender does not negotiate home prices. Hence, a real estate agent is the only one who can help you negotiate for it.
- When writing the agreement, you must make sure the seller credit is stated as a dollar amount, for example, it should clearly say that the seller will contribute $5,000 towards the home buyer’s closing costs.
The credit is never stated as a percentage because if it is stated that way then the lender will require an addendum to the purchase contract that mentions the exact amount the seller contributes. This will end up causing hassle and time loss on your end.
Some Useful Strategies
- The best way to ask for a seller credit is to wait for the home inspection report to come in. When the inspection report comes in, there will likely be some flaws in the house that may need immediate repair. This will give you a golden opportunity to request a seller credit.
If the seller disagrees to do the repair work, they can offer you cash instead of closing costs. This will help you preserve your own cash reserves, which you can use to repair the house after paying the closing costs.
- Moreover, if you love DIY-ing stuff, then you can do the repairs yourself and save a lot of money in the end.
Make sure to discuss the seller credit with your real estate agent and your lender. The agents will help you secure the credit and the loan officer will help you use those funds to the best of your advantage.
Although you can acquire seller credits in most types of loans, some loans such as 100% financing do not allow taking seller credit and gift money. If you are not sure whether the loan you are taking allows seller credit, talk to one of our financial experts and we’ll let you know the best loan to take.